Tuesday, December 30, 2008

"Profitability was just around the corner"

Or so the unfortunate American taxpayer was told by the ethanol industry and Congress that was happily shelling (if I may use that expression) said taxpayer's money. As the Wall Street Journal pointed out in a recent article - it hit the European edition today so I had to go scurrying through the website - the ethanol industry has been another victim of falling oil prices, together with the bubble economies, of Russia, Iran, Venezuela and the Dubai property market. (Actually, the last of these may survive if Dubai continues to diversify. Then again, it may not.)

The commodity bust has clobbered corn ethanol, whose energy inefficiencies require high oil prices to be competitive. The price of ethanol at the pump has fallen nearly in half in recent months to $1.60 from $2.90 per gallon due to lower commodity prices, and that lower price now barely covers production costs even after accounting for federal subsidies. Three major producers are in or near bankruptcy, including giant VeraSun Energy.

The answer is, of course, to ask for some more of that tax money as there is no way on earth that the ethanol industry in the United States can survive, never mind become profitable, without influx of subsidies.

Sadly, the WSJ concludes that more subsidy will probably be provided:

Ethanol may never be profitable in the real world, but in Washington it's alucrative business that provides jobs and votes. Like Fannie Mae and Freddie Mac, ethanol is a business created by Congress that now has to be bailed out to save Congress from embarrassment.

Meanwhile another article in today's newspaper deals with the sorry plight of the oil rogues: Hugo, Mahmoud and Vladimir. Numerous postings on this blog dealt with the problem of Russia. In most of them we pointed out that Russia's supposed newly acquired power was worth nothing. Economically the country was not developing the way it should and in foreign affairs it could bully but achieve very little. Even tiny Estonia stuck its tongue out at mighty big brother.

With the fall of the price of oil to around $40 a barrel and a severe economic crisis (though the word is not mentioned) gripping the country, some of the big media commentators are catching up with us. Look out for trouble in the early spring, the traditional time for that in Russia.

It is, however, Iran that is being eyed uneasily by the world because of the events in Gaza. Hamas is a client organization and needs Iranian support, both physically and emotionally. Who else is going to scream about destroying Israel? Mind you, the Iranians may provide arms and ammunition but when they talk about self-sacrifice, they mean Palestinian self-sacrifice.

How long will they be able to support Hamas and Hezbollah as well as control internal problems with oil prices staying low?